Big oil companies aren't terribly popular with a lot of society. The view is that they make hoards of cash and drive up oil prices. Of course the first is true, they do generate a lot of cash. Unfortunately for shareholders however much of that cash has to be reinvested in exploring for reserves to replace that which has been produced and into additional production.

The second part is just not true at all. The major oil companies of the developed world hold a small amount of the global oil reserves. The vast majority is held by state owned oil companies, and much of that lies in parts of the world that aren't terribly friendly towards the United States.

Here are a couple of eye opening numbers:

Oil reserves held by Exxon Mobil – 7.6 billion barrels

Oil reserves held by the Venezuela National oil company – 99.4 billion barrels

Oil reserves held by the Iranian National oil company - 136.2 billion barrels

Oil reserves held by the Saudi Oil company – 259.9 billion barrels

It is pretty clear that the control of global oil prices is not in the hands of the multinational oil companies.

"Name the biggest oil company in the world. ExxonMobil? British Petroleum? Royal Dutch Shell? In fact, the 13 largest energy companies on Earth, measured by the reserves they control, are now owned and operated by governments. Saudi Aramco, Gazprom (Russia), China National Petroleum Corp., National Iranian Oil Co., Petróleos de Venezuela, Petrobras (Brazil) and Petronas (Malaysia) are all larger than ExxonMobil, the largest of the multinationals. Collectively, multinational oil companies produce just 10% of the world's oil and gas reserves. State-owned companies now control more than 75% of all crude oil production.

The power of the state is back.

As the Cold War stumbled to a close, the belief that governments could effectively micromanage national economies and generate prosperity seemed dead. Communist China had been experimenting with capitalism since 1978. The massive Marxist bureaucracies of the Soviet Union and Eastern Europe had buckled under the burden of unsustainable economic systems. The dynamism and market power of the U.S., Western Europe, and Japan—fueled by private wealth, private investment and private enterprise—seemed to have fully established the dominance of the liberal economic model. Governments privatized companies and pensions as Exxon, Wal-Mart, Toyota and Microsoft feverishly drew up global expansion plans.

But public wealth, public investment and public enterprise have returned with a vengeance. An era of state-driven capitalism has dawned, in which governments are again directing huge flows of capital—even across the borders of capitalist democracies—with profound implications for free markets and international politics.

China and Russia are leading the way in the strategic deployment of state-owned enterprises, and other governments have begun to follow their lead. In defense, power generation, telecoms, metals, minerals, aviation and other sectors, a growing number of emerging-market governments, not content with simply regulating markets, are moving to dominate them. Fueling state-corporate activity is a new class of sovereign wealth funds, investment vehicles established by states with large foreign currency holdings that are designed to maximize the state's return on investment.

States use these tools to create wealth that can be directed as political officials see fit. The ultimate motive is not economic (maximizing growth) but political (maximizing the state's power and the leadership's chances of survival). This can distort the performance of markets. State-run companies and investment funds are also burdened with the same bureaucracy, waste and political cronyism that burden the (often authoritarian) governments that control them.

Within the borders of state capitalist countries, foreign companies and investors find that national and local rules and regulations are increasingly designed to favor domestic firms at their expense. Multinational companies now find themselves competing as never before with state-owned companies armed with substantial financial and political support from their governments.

In December 2006, the Russian government informed Shell, Mitsubishi and Mitsui that it had revoked their environmental permits as project managers for the $22 billion Sakhalin 2 project, forcing them to halve their respective holdings and give Gazprom, Russia's natural gas monopoly, a majority stake. This instantly wiped out 2.5% of Shell's global reserves. In June 2007, the private Russian-British consortium TNK-BP agreed under pressure to sell Gazprom its 63% stake in Rusia Petroleum, the company that held the license to develop the huge Kovykta gas field in eastern Siberia, and its 50% share in the East Siberian Gas Co.

This is how Gazprom became the world's largest producer of natural gas, with rights to about one-quarter of the world's known reserves. Gazprom provides the Russian government with control of one of the country's most valuable resources. It also provides the Kremlin greater political leverage inside energy-poor Ukraine and other neighbors of Russia.

Russia holds no monopoly on the recent wave of resource nationalism. In 2006, Ecuador accused U.S.-based Occidental Petroleum of espionage and environmental damage and ordered troops to seize its oil facilities. In 2007, the Bolivian government nationalized the country's oil and gas fields. Kazakhstan suspended development of the Kashagan oil field in the Caspian Sea, then the world's largest new crude oil discovery in many years. By 2009, state oil company KazMunaiGas had doubled its stake from 8% to more than 16% by drawing shares from six privately owned members of the consortium.

In coming years, this trend is likely to be repeated many times in other economic sectors. In 2009, Coca-Cola was hoping its lead role as a sponsor of the Beijing Olympics the year before would warm official attitudes toward its $2.4 billion bid for Chinese juice maker Huiyuan. The Chinese government ruled that the proposal violated antitrust legislation, and Coke came away empty-handed.

The financial crisis and global recession have made it much more difficult for those who believe in free-market capitalism to make their case to those who don't. China's strong economic rebound, America's high unemployment and financial volatility in Europe have all cast doubts on the free-market model.

HOUSTON—Exxon Mobil Corp., the world's largest publicly traded oil company, is struggling to find more oil.

In its closely watched annual financial report released Tuesday, the company said that for every 100 barrels it has pumped out of the earth over the past decade, it has replaced only 95.

It's a conundrum shared by most of the other large Western oil-producing companies, which are finding most accessible oil fields were tapped long ago, while promising new regions are proving technologically and politically challenging.

Exxon said in the report that it more than made up for the shortfall in oil by stocking up on natural gas, mostly through its acquisition of XTO Energy Inc. last year.

But the shift toward gas is troubling some investors, because gas sells for less than the equivalent amount of oil. Many observers feel the move toward gas—a trend across the oil industry—is dictated more by shrinking access to oil fields than by a strong desire to emphasize gas production.

"The good old days are gone and not to be repeated," says Fadel Gheit, an analyst with Oppenheimer and Co. Bringing additional reserves from gas "is not going to give you the same punch" that oil would, he said.

Finding the equivalent, in either oil or natural gas, of a barrel in the earth for every one the company produces—a 100% reserve replacement rate—has become extraordinarily tough. Exxon boasted this was the 17th consecutive year of hitting this mark, but analysts agree that without the XTO deal, Exxon would have fallen far short this year.

Investors look at these reserve figures as an important gauge of future profitability and business strength

Exxon now has more natural gas in reserve for future production than oil. And while the company has been very successful at finding or buying new natural gas, it has struggled to do the same with oil. For every 100 cubic feet of gas it has extracted , it has found or bought an additional 158.

Company spokesman Alan Jeffers says the company's "focus is on resources and projects that add shareholder value." That can be accomplished by finding oil, he says, but value can also be delivered through a corporate acquisition.

Exxon has become the largest U.S. company by market capitalization with a business model that stresses size and integration of assets. It has traditionally found crude oil, refined it into gasoline and other fuels and then sold these products.

But the stock market has recently favored oil companies, such as ConocoPhillips, that are shedding assets to get smaller. Smaller oil and gas finds can have a material impact on slimmed down companies.

The shift toward gas—and troubles with finding oil—has emerged as a theme for the giant Western oil companies. Royal Dutch Shell PLC's chief executive said last month the European company will produce more gas than oil next year for the first time in its 104-year history.

In the past few years, new technologies have unlocked vast resources of natural gas, depressing prices in North America and raising the possibility of falling prices in other regions also. Meanwhile, growing demand from emerging economies has sent crude-oil prices up strongly since prices cratered in 2008 during the worst of the recession. Natural gas prices closed today at $3.98 per million British thermal units, down 25% from a year ago, whereas a barrel of West Texas crude is up about 9.5% over that time, closing at $84.32 in trading on the NYMEX Tuesday.

Big oil companies are having trouble cashing in on the strong prices for crude oil. They have limited ability to drill in many oil-prone regions, such as Russia and part of the Middle East, due to politics. And even in promising Iraq, where many Western companies have won contracts, much infrastructure must be rebuilt. Exxon and others have also flocked to the oil-rich sands of Northern Alberta, Canada, but digging out the oil across vast swathes of forest comes at relatively high cost and generates concerns about the environmental impact.

One place where Western oil companies have found open doors is in deep-water exploration, because state-backed oil companies in Russia, China and the Middle East have little experience drilling these tricky wells. This has given Western companies access to new opportunities, such as Exxon's recent deal with Russian oil giant OAO Rosneft to explore the Black Sea.

The hunt for oil explains why these companies are so keen to restart work in the Gulf of Mexico, after a halt imposed by the Obama administration following the Deepwater Horizon spill. Some companies also are seeking permission to drill exploratory wells above the Arctic Circle. The Arctic remains one of the few unexplored regions of the world and the region above Alaska and western Canada is believed to be oil rich.

But deep-water projects take a long time to turn from a prospect that a geologist has identified into a producing asset. Chevron Corp.'s chief executive said last week that he expects to add new barrels of oil to its reserves from "several major deep-water projects" in future years. In 2010, he warned that Chevron added only one new barrel for every four it produced.

Given the difficulties these companies are facing, some investors have begun to wonder if Exxon bought XTO last year to "mask the extent of their replacement problem," said R. Blair Thomas, chief executive of EIG Global Energy Partners, an energy asset -management firm.

The market didn't like Exxon's announcement, sending the bellwether stock down 2.3% to $82.97 in 4 p.m. trading Tuesday on the New York Stock Exchange.

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